The One-Chart Summary Of All That Is Wrong With The US Financial System: JPM Deposits Over Loans

Tyler Durden's picture

The chart below may be the best one-chart summary of all that is wrong with the US financial system. It is a very simple chart - it shows total JPMorgan deposits, loans and the excess difference of deposits over loans.

Why is it a good summary? Because as the blue bar shows, total loans issued by the biggest US bank were $723 billion in Q1 2013: about $30 billion less than in the quarter Lehman blew up. Four years later, and the US commerical bank lending apparatus is still in a state of depression. Or so it would appear on the books.

But why doesn't JPM lend out more: after all that is the main pathway to stimulate the economy as all pundits will tell us. Simple: it doesn't need to. As the red bars show, total consumer deposits held by the bank just rose once more, this time to a record $1202.5 billion, up $9 billion in the quarter, pushing the deposit-over-loan difference to a new record $480 billion. This is happening exclusively due to the Fed, which when banks do not "create" money from loans (as they obviously don't), has to step in with QE and create money on its own.

It also means that JPM has to allocate this excess capital somehow and until a year ago, was simply funding its prop trading desk with this deposit cash as "dry powder" to manipulate and corner various derivative markets courtesy of the London Whale traders. Another result of course is that risk assets are bid up to record highs even as the actual flow through of the Fed's "wealth effect" is halted precisely due to the complete collapse in new loan creation - the primary "transmission mechanism" of economic growth.

In other words, by keeping the pedal to the metal on QE, the Fed is giving the banks all the benefits of money creation (soaring deposits), without any of the risks (loan creation in a record low Net Interest Margin environemnt). Any if you are JPM you will be perfectly happy with this arrangement and not seek to lend out any money, as the case has been for the past four years. Which means consumers who wish to take out loans to fund ventures and other growth strategies are fresh out of luck, because the banks that ordinarily supply them with this risk capital have simply shut down the process entirely.

And that is precisely the jist of all that is broken in the US financial system, and why the Fed is in fact making things worse, not better, and is progressively destroying the wealth of the middle class, stunting any growth opportunities the US may have, and all the residual wealth is pumped into the hands of those benefiting solely from rising asset prices.